By Biswajit Dhar
In August 2021, the Union government notified the Remission of Duties or Taxes on Export Products (RoDTEP) scheme aimed at neutralising the taxes and duties imposed on exported goods that are otherwise not credited or remitted or refunded in any manner and remain embedded in the export goods.
In fact, the subsidies discipline in the WTO spelt out in the Article XVI of GATT 1994 and the Agreement on Subsidies and Countervailing Measures (ASCM) follows this principle. The ASCM clarifies while defining a subsidy that “exemption of an exported product from duties or taxes borne by the like product when destined for domestic consumption, or the remission of such duties or taxes in amounts not in excess of those which have accrued, shall not be deemed to be a subsidy”. This implies that so long as the duties that are exempted on an exported product are not in excess of the duties imposed on a similar product that is sold in the domestic market, there is no violation of the subsidies discipline of the ASCM. The rebate extended to the exporter under the RoDTEP scheme is provided in the form of transferable e-scrips to be used only for payment of customs duty.
In early December 2023, the minister of state for commerce and industry, Anupriya Patel, informed the Lok Sabha that both the US and the European Commission (EC) had conducted investigations and had decided to impose countervailing duties (CVD) on several products covered under the RoDTEP Scheme. The US had decided to impose CVD on the imports of paper file folders, common alloy aluminium sheet and forged steel fluid end blocks from India, while the EC had targeted imports of graphite electrodes. The imposition of the CVD on the targeted products would thus nullify any benefits that their producers obtain from the RoDTEP scheme.
The US department of commerce had imposed CVD on imports of forged steel fluid end blocks from India in early 2021. Just over a year later, the department initiated an administrative review for the countervailing duty order. Its finding at the end of the review was that countervailable subsidies were provided to Bharat Forge Limited during the period of review, May 2020 to December 2021.It initiated similar CVD investigations on all forms of paper file folders suitable for holding documents imported from India in November 2022. In its final determination in October 2023, the department ruled that countervailable subsidies were provided to producers and exporters of these products, and that for two companies, Navneet Education Ltd, Lotus Global Pvt. Ltd the subsidy rates were, respectively, 3.78% and 90.98%, while for all others, the rate was 3.78%.
In November 2023, the US department of commerce ruled that Hindalco Industries Limited had received countervailable subsidies during the period of review, between August 2020 and December 2021 and that its subsidy rate in 2021 was 32.43%.While imposing the CVD on the identified products, the US department did not reveal the reasons for so doing publicly. However, the EC has provided detailed explanations for imposing CVD on graphite electrodes, which show that its interpretations of the working of the RoDTEP scheme and its consistency or otherwise with the ASCM are in conflict with those of India’s.
The EC had first imposed CVD on imports of graphite electrodes from India in 2004. The CVD was extended twice, the last extension was until March 2022. In December 2021, producers of the targeted product from the European Union member states requested a review of the termination of the CVD on Indian imports. They argued that the termination of CVD could result in continuation of subsidisation and recurrence of injury due to “additional or new subsidies”, implying the RoDTEP Scheme. The EC initiated the “expiry review” of the CVD in March 2022 for investigating a “likelihood of continuation or recurrence of subsidisation” during calendar year 2021.
During the review, the EC did not concur with Government of India’s (GoI) view that the RoDTEP scheme is based on the principle that taxes should not be exported. The EC pointed out that the “duty credit provided under the Scheme is a financial contribution by the GoI, since the credit will eventually be used to offset import duties paid on capital goods, thus decreasing the GoI’s duty revenue which would be otherwise due”. Since the ASCM defines government’s revenue forgone as a subsidy, the EC argued that use of RoDTEP e-scrips for paying customs revenue should also be considered as such. While extending CVD on graphite electrodes, the EC stated that the rates of the definitive countervailing duty applicable to two companies, namely Graphite India Limited and HEG Limited would be 6.3% and 7%, respectively, and for all other companies the rate would be 7.2%.
An important aspect of the EC’s investigation was its observation that the RoDTEP scheme has no system or procedure in place to confirm which inputs are consumed in the production process of the exported product or to ascertain whether an excess payment of import duties had occurred. Excess payments to exporters, over and above the exact remission of duties, would be considered as export subsidies, and, therefore, a violation of the ASCM. It seems that this procedural lacuna prevented GoI from being able to successfully defend its WTO-consistent scheme and to ensure that embedded taxes in the prices of export products do not leave exporters at a disadvantage.
The author is a Distinguished professor,Council for Social Development
Views expressed are personal